34.5. Methods for monitoring hedge effectiveness

In the Volkswagen Group, hedge effectiveness is assessed prospectively using the critical terms match method and using statistical methods in the form of a regression analysis. Retrospective analysis of effectiveness uses effectiveness tests in the form of the dollar offset method or a regression analysis.

Under the dollar offset method, the changes in value of the hedged item expressed in monetary units are compared with the changes in value of the hedging instrument expressed in monetary units.

Where regression analysis is used, the change in value of the hedged item is presented as an independent variable, and that of the hedging instrument as a dependent variable. Hedge relationships are classified as effective if they have sufficient coefficients of determination and slope factors.

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NOTIONAL AMOUNT OF DERIVATIVES

 

 

REMAINING TERM

 

TOTAL NOTIONAL AMOUNT

 

TOTAL NOTIONAL AMOUNT

€ million

 

under one year

 

within one to five years

 

over five years

 

Dec. 31, 2015

 

Dec. 31, 2014

 

 

 

 

 

 

 

 

 

 

 

Notional amount of hedging instruments used in cash flow hedges:

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

1,989

 

6,685

 

190

 

8,864

 

5,154

Currency forwards

 

43,433

 

59,154

 

 

102,587

 

84,243

Currency options

 

7,244

 

15,745

 

 

22,989

 

16,246

Currency swaps

 

6,725

 

628

 

 

7,353

 

4,938

Cross-currency swaps

 

238

 

1,170

 

354

 

1,762

 

1,615

Commodity futures contracts

 

413

 

358

 

 

771

 

858

Notional amount of other derivatives:

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

21,090

 

46,614

 

17,611

 

85,316

 

76,188

Interest rate option contracts

 

 

 

 

 

Currency forwards

 

15,893

 

9,490

 

1

 

25,383

 

6,774

Other currency options

 

 

45

 

 

45

 

137

Currency swaps

 

9,644

 

230

 

 

9,874

 

8,734

Cross-currency swaps

 

1,886

 

6,418

 

112

 

8,417

 

8,935

Commodity futures contracts

 

931

 

586

 

 

1,517

 

1,994

In addition to the derivatives used for hedging foreign currency, interest rate and price risk, the Group held options and other derivatives on equity instruments at the reporting date with a notional amount of €1.4 billion (previous year: €1.5 billion) whose remaining maturity is under one year.

Existing cash flow hedges in the notional amount of €– million (previous year: €18 million) were discontinued because of a reduction in the projections. €– million (previous year: €0 million) was transferred from the cash flow hedge reserve to the financial result, decreasing earnings. In addition, hedges were terminated due to internal risk regulations. For further information, please refer to the “Key events” section.

Items hedged under cash flow hedges are expected to be realized in accordance with the maturity buckets of the hedges reported in the table.

The fair values of the derivatives are estimated using market data at the balance sheet date as well as by appropriate valuation techniques. The following term structures were used for the calculation:

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in %

 

EUR

 

CHF

 

CNY

 

CZK

 

GBP

 

JPY

 

KRW

 

SEK

 

USD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate for six months

 

−0.0782

 

−0.6232

 

2.9434

 

0.3599

 

0.6146

 

0.1589

 

1.6629

 

−0.2853

 

0.6792

Interest rate for one year

 

−0.0773

 

−0.6828

 

3.1097

 

0.4530

 

0.7208

 

0.1350

 

1.6174

 

−0.2833

 

0.8597

Interest rate for five years

 

0.3280

 

−0.3050

 

3.2400

 

0.6200

 

1.5910

 

0.1688

 

1.7350

 

0.7190

 

1.7263

Interest rate for ten years

 

1.0000

 

0.2500

 

3.4200

 

1.0150

 

1.9930

 

0.4238

 

1.9325

 

1.6200

 

2.1870